Struggling SMEs Ditch International Trade: What's Causing the Exodus?
Numerous small-scale entrepreneurs are opting out of transnational commercial activities. - Numerous Small and Medium Enterprises (SMEs) Opt Out of International Trade Operations
Small and medium-sized enterprises (SMEs) in Germany are ditching their international businesses at an alarming rate. In 2022, nearly 23% of these businesses were engaged in foreign trade, but by 2023 that number dwindled to a mere 20%, according to an analysis by the KfW development bank. That's below the pre-COVID long-term average, with the number of SMEs actively trading internationally dropping from 880,000 to 763,000.
Dirk Schumacher, KfW's chief economist, explains the reasons for this grim trend: "The environment for foreign trade has taken a nose-dive." He points to factors such as geopolitical tensions in Ukraine and the Middle East, escalating export competition from China in key industries, and America's protectionist trade policies. Add to that the mounting challenges SMEs face in Germany, and it's easy to see why so many are calling it quits on international business.
A KfW survey conducted in January 2025 reveals that the situation hasn't improved. In fact, the number of companies reporting shrinking foreign sales outnumbers those enjoying growth – 25% versus 21%. The outlook for the next few years remains uncertain.
SMEs with business ties to the US, which make up around 16% of the total, are feeling the pain the most. In a survey conducted before Donald Trump announced his devastating tariff package, nearly half of those firms (43%) expressed fears of negative consequences from the new policies on their own companies.
While the USA is important, Europe remains the most significant sales market for German SMEs. According to KfW, in 2023, the most frequent destinations for their products were Austria, Switzerland, the Benelux countries, and France. The SMEs that did remain active internationally managed to boost the share of international sales in their total turnover to 29%. However, as numerous companies pull out, the total foreign sales of German SMEs declined slightly to €698 billion.
- international business
- foreign trade
- Germany
- KfW Bankengruppe
- USA
- China
- Frankfurt am Main
- Donald Trump
- Coronavirus
- Dirk Schumacher
- Ukraine
- Trade uncertainty
- Global economic upheavals
- Trade deficits and imbalances
- Geopolitical pressures
Sources:[1] Neue Zürcher Zeitung (2023), "AHK World Business Outlook: German SMEs Anxious about Trade Policy".[2] Wall Street Journal (2023), "US-Germany Trade Deficits: Challenges and Opportunities".
- The exodus of SMEs from international trade in Germany is primarily driven by unfavorable conditions, including geopolitical tensions, escalating export competition from China, and America's protectionist trade policies, as Dirk Schumacher, KfW's chief economist, states.
- Despite Europe remaining the most significant sales market for German SMEs, the negative impact of the US tariff package has been particularly pronounced for the SMEs with business ties to the US, with nearly half of those firms expressing fears of negative consequences before Donald Trump's announcement.
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